A two-judge Bench of Justice S. Abdul Nazeer and Justice Krishna Murari has held that the distinction between mere breach of contract and cheating which is a criminal offence is a fine one.

In this context, the Court noted –

"While breach of contract cannot give rise to criminal prosecution for cheating, fraudulent or dishonest intention is the basis of the offence of cheating."

The Court also held that there can be no doubt that mere a breach of contract is not in itself a criminal offence and gives rise to the civil liability of damages.

Senior Counsel Ms. Menaka Guruswamy appeared for the Appellants while Senior Counsel Mrs. Anjana Prakash appeared for the Respondents before the Supreme Court.

An appeal was preferred assailing the judgment of the Calcutta High Court which had dismissed the prayer of the Appellant for quashing of proceedings and had held that the continuance of criminal proceedings against the Appellant -Accused would not be an abuse of the process of the Court.

In this case, Respondent No. 2 had made an investment of Rs. 2.5 Crores with the Appellants in lieu of 2,50,000 shares of the Appellant's company.

However, having failed to bring the Initial Public Offer (IPO) as per the MoU signed, Respondent No. 2 issued a legal notice to the Appellants who denied all the allegations contained in the legal notice.

Thereafter, Respondent No. 2 filed two complaints under Section 156(3) of CrPC for registration of FIR against the Appellants and their company and also under Section 68 of Companies Act read with Section 200 CrPC before the Tiz Hazari Court, New Delhi.

The Metropolitan Magistrate (MM) had observed that the entire dispute of Respondent No. 2 was civil in nature and there was no criminality involved, thereby turning down the prayer of Respondent No. 2 for registration of an FIR and posted the case for pre-summoning evidence with regard to the application under Section 156(3) Cr.P.C filed by Respondent No.2. It is pertinent to mention here that the order of the MM, Tis Hazari Court, New Delhi attained finality as it was not put to further challenge.

Thereafter, Respondent No. 2 filed a second complaint under Sections 406, 409, 420, 468,120B and 34 IPC on the basis of the same cause of action with the PS Bowbazar at Kolkata, West Bengal, and the same was converted into an FIR under Section 406, 420, 120B IPC.

The Appellants argued before the Supreme Court that Respondent No. 2 indulged in the practice of forum shopping by filing 2 complaints i.e., one complaint before the Tis Hazari Court and the other at PS Bowbazar Calcutta that was lodged during the pendency of the complaint at Tis Hazari Court and this fact was cleverly suppressed by Respondent No. 2.

Further, it was contended that the allegations contained in the FIR were purely contractual disputes of civil nature but it was given a criminal color by Respondent No. 2 and that breach of contract did not come within the purview of cheating as defined under IPC.

The Apex Court held that the Supreme Court has condemned the practice of forum shopping by litigants and termed it as an abuse of law and also deciphered different categories of forum shopping.

The Bench further placed reliance on Krishna Lal Chawla & Ors. Vs. State of U.P. & Anr where it was held multiple complaints by the same party against the same accused in respect of the same incident is impermissible.

Additionally, the Court referred to the precedent G. Sagar Suri & Anr. Vs. State of UP & Ors. where it was held that it is the duty and obligation of the criminal court to exercise a great deal of caution in issuing the process, particularly when matters are essentially of civil nature.

While referring to several other precedents, the Court opined that the complaint filed by Respondent No. 2 did not disclose the dishonest or fraudulent intention of the Appellants.

"Having gone through the complaint/FIR and even the chargesheet, it cannot be said that the averments in the FIR and the allegations in the complaint against the appellant constitute an offence under Section 405 & 420 IPC, 1860. Even in a case where allegations are made in regard to failure on the part of the accused to keep his promise, in the absence of a culpable intention at the time of making promise being absent, no offence under Section 420 IPC can be said to have been made out. In the instant case, there is no material to indicate that Appellants had any malafide intention against the Respondent which is clearly deductible from the MOU dated 20.08.2009 arrived between the parties," the Court held.

The Bench also added that in order to attract the ingredients of Section of 406 and 420 IPC it is imperative on the part of the complainant to prima facie establish that there was an intention on part of the petitioner and/or others to cheat and/or to defraud the complainant right from the inception.

The Court observed, "Furthermore it has to be prima facie established that due to such alleged act of cheating the complainant (Respondent No. 2 herein) had suffered a wrongful loss and the same had resulted in wrongful gain for the accused (appellant herein). In absence of these elements, no proceeding is permissible in the eyes of law with regard to the commission of the offence punishable u/s 420 IPC."

Accordingly, the Court allowed the appeal and set aside and quashed the impugned order of the High Court.

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